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China’s decision to extend its ship recycling subsidy programme may be led by economics, but is it also driving environmental standards in ship recycling across the global industry?

China’s Ministry for Transport Ship Recycling Subsidy programme was due to end in 2015, but has recently been extended for an additional two years. First established in 2013, the policy offers an initial subsidy of RMB 750 ($120) per gross tonne to ship owners who scrap their vessels before their operational expiry date. A second subsidy of the same amount is also available once a new Chinese-registered vessel is ordered as a replacement.

As Zhang Shouguo, Executive Vice-Chairman of the Chinese Shipowners' Association, commented in Maritime Executive, the subsidy has been extended in order to support the Chinese shipping industry which is facing “a very difficult downturn” due to the Chinese economic slowdown and an overcapacity of vessels in the market. Demand for new ships, even with efficiency improvements, is therefore questionable.

Even before the subsidy programme was extended, China received 65 out of the 262 ships scrapped globally between January and April 2015. Shipbreaking yards in Bangladesh and Pakistan recycled slightly more (66 and 69 respectively). Increasing numbers of ships are expected to head towards China’s recycling yards as regulation from the European Commission is announced later this year.

As Adam Minter writes in the BloombergView, “China's ascendancy as a ship breaker won't spell the complete demise of Alang”. However, could increasing environmental standards for dismantling EU-registered ships, combined with China’s falling steel price, bring an end to its substandard practices?

South Asian shipbreaking yards could react in one of two ways, as Patrizia Heidegger of Shipbreaking Platform speculates. The EU list in particular, could ““split the market into a safe market, and a substandard market”.

However, China’s subsidy programme is already removing the incentive for Chinese ship owners to beach their ships in low-cost shipbreaking yards such as Alang or Chittanchong. Fearing loss of business EU-registered ships as well – another key portion of the shipbreaking market – shipyard operators claim to have made improvements to ensure the safe disposal of asbestos, and introduced periodic auditing and medical check-ups for workers. These changes may not yet reach the standards set by the EU, but they could be leading the industry in the right direction.